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British Consumers: They're Not Gonna Take It Anymore

January 24, 1999

International Business: Britain

British Consumers: They're Not Gonna Take It Anymore

British consumers rebel against price-gouging retailers

If Britain had a national refrain, it might be "Mustn't grumble." You hear it as Britons wait on endless lines to pay high prices for everyday groceries. You hear it as they fork out 40% to 60% more than people on the Continent for cars and computers. And you hear it as they suffer through pricey, cattle-car package vacations with the stiffest of upper lips.

But Britain's downtrodden consumers are learning to complain. Television programs about consumers' rights are experiencing huge juMPS in viewership. The media and politicians are attacking coddled car dealers and obscenely profitable supermarket chains for price-gouging. Parliamentary hearings call for industry regulation and codes of conduct. "British consumers are starting to flex their muscles," says Martin Hayward, a director of the Henley Center, a consumer consultancy in London."RIDICULOUS." For years, scant competition, due largely to scarce and costly real estate, has allowed sellers of cars, computers, and groceries to wield enormous pricing power in Britain. Until fairly recently, British consumers didn't know they were getting a raw deal. But speedier travel has made comparison shopping easier. Now, the rise of the Internet and the introduction of a common currency on the Continent will make price gaps between countries even more obvious. Although Britain isn't joining the European monetary union right away, British retailers won't be able to escape the downward pressure on prices for long.

Some retailers are already under fire. A prime target is Dixons, the $4.6 billion electronics retailer that sells half the personal computers bought through shops for British homes. Critics charge that Dixons' dominant position is one reason pcs in Britain cost up to 40% more than in France or Germany. Indeed, Intel Corp. CEO Craig Barrett caused a stir recently, saying that the chain's "ridiculous margins" had dampened computer sales in Britain. Dixons counters that its gross margins on computers, around 10%, are not excessive.

But the chain is lowering its prices, and competition is heating up as demand for pcs rises in Britain. More shoppers are buying computers over the Internet or from direct sellers such as Dell Computer Corp. and Gateway Inc., which often offer lower prices than stores can. Dixons is responding with its own electronic sales operation.TELLY TIPS. Britain's car industry is another focus of outrage. In early December, members of Parliament blasted the industry for the huge price gap between new cars sold in Britain and on the Continent. The MPS complained that most cars were 30% to 40% more expensive in Britain.

When the industry offered excuses, such as the higher cost of producing right-hand-drive cars and the strength of the British pound, the MPS didn't swallow them. Instead, they blamed much of the problem on exclusive dealership arrangements that stymie competition. Likewise, they criticized the "feebleness" of the powers granted to the Office of Fair Trading, which regulates the industry. The OFT is investigating the car-pricing issue.

British supermarkets may also be getting away with gouging. The four big chains--Tesco, Sainsbury, Asda, and Safeway--boast some of the highest margins in the world for their industry, around 5%. Earlier this year, a London Sunday Times survey showed that shoppers paid up to 40% more in Britain for food at these stores than at chains in the U.S. or elsewhere in Europe. Retailers argue that opening new stores is unusually difficult and costly in Britain, where land use is tightly controlled. But the OFT is investigating whether the big four supermarket chains have abused their market position.

British grumbling is getting louder. A recent survey by the Henley Center found that 56% of Britons griped about products or services in the past year, up from 39% in 1997. More than 7 million of them get weekly coaching from British Broadcasting Corp.'s Watchdog series, which highlights instances of overpricing and unusually poor service and urges consumers to stand up for their rights. As Britons get better at fighting back and competition grows, the retailers' gravy train is bound to derail.By Julia Flynn in London